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Gold & Silver DAILY NEWS

The gold and silver markets have rallied during the last three weeks, and despite brief hiccups in gold and silver prices, the prices of both metals are currently near six-week highs. As of 8am EST … Read More

March 26, 2008 – Buy Gold And Silver Buy Gold And Silver

When the British firm Barclays Global Investors introduced their electronically traded fund (ETF), iShares Silver Trust (also known as SLV), in 2006, interest from traders was immediate and profound. Joining more established gold ETFs, first introduced in 2004 with the very popular Street Tracks Gold Trust, many billions of dollars have been poured into these funds. Whether they are really even capable of influencing gold and silver spot prices, remains to be seen.

There are plenty of theories as to why the spot price of both gold and silver seems to be holding far more steady than many think it should, many proposed by some of the best minds in the business. However, there does seem to be a correlation between the price of gold and silver bullion and the rush to invest in notoriously risky mining operations as well as “paper metals.”

In the run up to the initial offering of Barclay’s silver ETF, there was a vast amount of speculation as to how this would affect the actual demand for silver. Many assumed that since so many people would be buying into the funds, that Barclays would be required to make massive investments to buy gold and silver to keep up with ETF customer demand. In theory, these companies are required to keep something like the same amount of silver on hand as to be sure they can cover depositors and investors.

Unlike what was predicted, silver didn’t immediately jump, but it did eventually, in part due to the increased demand from industrial sectors other than photography, go up over $14 per ounce about two years later in early-2008. Given the much smaller pool of investors in the overall silver market up until 2006, moves in the price of silver have tended to be volatile. However, with the massive hits to the stock markets and banking system in late 2008, the spot price of gold and silver have both been very strong since early 2009.

For those who regularly invest in gold and silver, the skepticism about whether these funds actually have the amount of silver on hand – estimated at over 100 million ounces for the SLV fund – remains very high. In fact, it is assumed that many of these funds have been short of physical stocks for some time. For that reason, many investors have been retreating into physical silver bars and coins at tremendous rates. Nearly three times the normal demand.

That said, a large part of the recent increase in silver investment rates has been in the form of silver ETFs, too. Because these funds are able to purchase so much silver, they should be able to corner the market to some extent, but many investors worry that this has failed to happen because they simply aren’t buying enough silver to cover all the investment. If this were found out, the impact on gold and silver spot prices would be incalculable.

Whether this is true is a matter of speculation because no one has really physically gone and looked. Some even claim that the documentation Barclays, through JP Morgan Chase, filed with the SEC (and okayed by them) was intentionally misleading. It could be interpreted to mean that none of the investors are actually guaranteed to be backed by real gold and silver investments in either of their ETF funds.

Gold and silver spot prices will likely continue to be extremely volatile for some time. A climate of distrust of the clearly distrustful US banking industry and may lead to a flight of investors willing to purchase gold and silver ETFs. On the other hand, investors who purchase stocks at such high prices as seen in February of 2009 will be loathe to sell them at lower prices.